International Accounting:Comparative Accounting


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International Accounting:Comparative Accounting

  1. 1. International Accounting, 7/e Frederick D.S. Choi Gary K. Meek Chapter 3: Comparative Accounting: Europe
  2. 2. Learning Objectives  Understand how financial reporting is regulated and enforced in five European countries: France, Germany, the Czech Republic, the Netherlands, and the U.K.  Describe the key similarities and differences between the accounting systems of these five countries.  Identify the use of International Financial Reporting Standards at the levels of the individual company and the consolidated financial statements in these five countries.  Describe the audit-oversight mechanisms in these five countries.
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  4. 4. IFRS in the European Union  Starting in 2005, all EU-listed companies must follow IFRS in their consolidated financial statements.  Generally, IFRS consolidated statements are permitted for non-listed companies.  Requirements for individual company financial statements vary – IFRS may be required, allowed, or prohibited.
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  8. 8. IFRS (contin)  IFRS are based on fair presentation principles  IFRS may be overridden in rare circumstances to achieve fair presentation  Accounting measurements  Business combinations – purchase accounting  Goodwill – annual impairments test  Investments in associates – equity method  Translation of financial statements of foreign operations – functional currency concept  Assets valued at historical cost or fair value  Research costs – expensed; development costs – capitalized  LIFO not allowed  Finance leases – capitalized; operating leases – expensed  Provisions – recognized when probable and estimable  Deferred taxes – recognized in full, using the liability method, for temporary differences between the carrying amount and tax base
  9. 9. France  Overview  “The Plan” – national uniform chart of accounts (national accounting code)  Objectives and principles of financial reporting  Definitions of elements  Recognition and valuation rules  Standardized chart of accounts  Model financial statements  Other influences on French accounting rules  Commercial legislation (Code de Commerce)  Tax laws
  10. 10. France (contin)  Accounting regulation and enforcement  CNC – National Accounting Board  Keeps plan current  Makes rulings and recommendations on accounting issues  CRC – Accounting Regulation Committee  Converts CNC rulings and recommendations into binding regulations  ANC – National Accounting Authority  Will replace CNC and CRC as the national standard setter  AMF – Financial Markets Authority  Supervises securities markets  OEC – Institute of Public Accountants  Represents the accounting profession  Members prepare financial statements, and provide tax, information systems, and management advisory services  CNCC – National Institute of Statutory Auditors  Members audit and give an opinion on financial statements  Must report criminal acts to the High Council of External Auditors  Substantial overlap in OEC and CNCC membership  Statutory auditors not allowed to provide accounting services to the same client  AMF oversees audits of listed companies, but relies on a committee of the CNCC to conduct audit- quality reviews
  11. 11. France (contin)  Unusual features of French financial reporting  Must report results of environmental activities  Reports aimed at preventing bankruptcies  Social report
  12. 12. Germany  Overview  Creditor protection  Conservative balance sheet valuations  Reserves as protection against unforeseen risks and insolvency  Accounting is designed to compute a prudent income amount that leaves creditors unharmed after distributions are made to owners  Influence of tax law  Determination principle: taxable income is determined by what is booked in a company’s financial records  Reliance on statutes and court decisions
  13. 13. Germany (contin)  Accounting regulation and enforcement  German Commercial Code (HGB)  Applies to all business entities  German Accounting Standards Board  Develops recommendations for consolidated financial statements  Financial Reporting Enforcement Panel  Enforces compliance with German financial reporting requirements and IFRS by listed companies  Chamber of Accountants  Oversees WPs (“enterprise examiners”)  Unusual features of German financial reporting  Auditor’s private report to board of directors and supervisory board on company’s future prospects
  14. 14. Czech Republic  Overview  Accounting changed directions several times in 20th century, reflecting the country’s political history  Until end of World War II – German influences  After World War II – Soviet influences  After 1989 – EU influences (market orientation)  Accounting regulation and enforcement  Ministry of Finance  Oversees Commercial Code (modeled on German commercial law)  Oversees Accountancy Act (based on EU directives)  Chamber of Auditors  Oversees auditors  Unusual features of Czech financial reporting  Form over substance still applies in some cases  Still implementing accounting practices consistent with EU directives and IFRS
  15. 15. The Netherlands  Overview  Accounting paradoxes  Permissive requirements, but high professional practice standards  Code law country whose accounting is oriented toward fair presentation  Fair presentation orientation developed without a strong stock market  Other influences on Dutch accounting  U.K. and U.S. as much as continental European countries  Accounting profession  Business economics (microeconomics approach)  IASB
  16. 16. The Netherlands (contin)  Accounting regulation and enforcement  Company law – Act on Annual Financial Statements  Dutch Accounting Standards Board  Develops guidelines on generally acceptable accounting standards  Netherlands Authority for the Financial Markets  Supervises operations of securities markets  Oversees financial reporting and auditing of listed companies  Enterprise Chamber  Enforces compliance with accounting requirements  NIvRA  Oversees auditing profession  Unusual features of Dutch financial reporting  Financial statements may be in Dutch, French, German, or English  Other than consolidated financial statements of Dutch listed companies, financial statements may be based on Dutch guidelines, IFRS, or a combination  Flexible accounting measurements  Current values are permitted for tangible assets  Opportunities for income smoothing
  17. 17. United Kingdom  Overview  Legacy of British accounting  First country to develop an accountancy profession  Fair presentation (true and fair view)  Exported British accounting around the world
  18. 18. United Kingdom (contin)  Accounting regulation and enforcement  Companies Act  Broad financial reporting framework  Financial Reporting Council oversees:  Accounting Standards Board  Issues Financial Reporting Standards (FRSs)  UITF clarifies FRSs  Auditing Practices Board  Issues auditing standards  Financial Reporting Review Panel  Enforces compliance with FRSs  Professional Oversight Board  Oversees auditing profession  Audit Inspection Unit  Monitors the audit of listed companies  Accountancy Investigation and Discipline Board  Investigates and disciplines accountants for professional misconduct  Unusual features of British accounting  True and fair override
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  20. 20. Other Chapter Exhibits
  21. 21. Other Chapter Exhibits (contin)
  22. 22. Other Chapter Exhibits (contin)
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